Clause 20 – Disclosure of valuations

Three recent incidents have highlighted the meaning and importance of clause 20 of Schedule 2 of the Code (which contains the requirements of the target company statement). These incidents have shown:

that valuations must be summarised and made available to shareholders if they are referred to specifically in the target company statement (which includes the independent adviser’s report);

that valuation reports do not just concern assets of the target company, but they may concern the target company itself, or other assets of relevance;

in an exceptional case the Panel has been prepared to grant an exemption to allow parts of valuation reports containing commercially sensitive information to be deleted before being given to shareholders.

Trans Tasman Properties Limited

On 20 May 2004 the Panel considered a complaint from Latimer Holdings Limited relating to Trans Tasman Properties Limited’s refusal to release to Latimer valuation reports it alleged were referred to in Trans Tasman Properties’ target company statement.

The complaint arose after Trans Tasman Properties issued a target company statement and an independent adviser’s report by Ferrier Hodgson & Co to its shareholders, in response to a takeover offer from SEA Holdings New Zealand Limited dated 20 April 2004.

Clause 20 refers to valuations of assets that are identified specifically in the target company statement. Trans Tasman Properties’ target company statement had not focused on a particular valuation of a particular asset. The independent adviser was content to deal with property values on a global basis, consistent with the last published financial statements.

The Panel determined that the target company statement had complied with clause 20 of Schedule 2 of the Code. The Panel did not accept that the reference by the independent adviser to the financial statements contained in the annual report (which referred to valuations) amounted to a reference to “a valuation” in terms of clause 20. The clause requires a reference “to a valuation of any asset”.

In addition to the obligation under clause 20, Schedule 2 of the Code also imposes obligations on the target company directors to consider matters such as asset valuations where they may be material, irrespective of the requirements of clause 20. If such valuations are considered material, the directors are obliged to make such information known to the company’s shareholders.

Wrightson Limited

The recent target company statement issued by Wrightson Limited in response to the partial takeover offer from Rural Portfolio Investments Limited included references to a valuation report prepared by Cameron & Company.

Wrightson advised shareholders that it had sought from its advisers, Cameron & Company, a valuation report in addition to the rule 21 report that was prepared by Grant Samuel (the independent adviser appointed to prepare the rule 21 report).

The Panel sought comment from Wrightson as to whether the reference made to Cameron & Company’s valuation report in the target company statement would require the company to provide the report to shareholders on request, as part of its obligation under clause 20 of Schedule 2 of the Code.

Wrightson said that it did not need to comply with clause 20 because Cameron & Company’s valuation was a valuation of Wrightson as a whole rather than of a specific asset or assets held by Wrightson.

The Panel considered that clause 20 did not have the narrow interpretation suggested by Wrightson. The requirements in clause 20 apply if the target company statement refers to a valuation of any asset and is not restricted to a specific asset of the target company.

Subsequently, Wrightson took steps to provide the information required by clause 20 to shareholders, including a statement that a copy of the valuation would be available, in full, to any offeree on request.

Kingsgate International Corporation Limited – Clause 20 Exemption

The Panel granted an exemption to Kingsgate International Corporation Limited from clause 20(b) of Schedule 2 of the Code. The exemption allowed Kingsgate to provide upon request, copies of the relevant valuation reports, in a form which excluded information which the Panel had agreed was commercially sensitive.

Grant Samuel, in its independent adviser’s report, had referred to valuations of various Australian properties owned by Kingsgate, which were carried out by CB Richard Ellis. These valuation reports had not been prepared with a view to public disclosure, and contained very detailed information about the properties involved.

In considering whether to approve Kingsgate’s request for the exclusion of certain information from the valuations, the Panel used the following criteria:

Is the information sought to be withheld material to a decision by Kingsgate shareholders to accept or reject the current takeover offer?

Is the information sought to be withheld likely to be “value destroying” information for shareholders of Kingsgate?

Is the information sought to be withheld commercially sensitive?

The Panel regards the Kingsgate exemption as exceptional and does not expect to have to consider similar reports in future.